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Belgian Transfer Pricing Documentation Requirements

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Reference is made to our previous Tax News Flashes dated May 16, 2016 and July 5, 2016 in relation to the introduction of Transfer pricing documentation requirements in Belgium. Particularly, Belgium has implemented OECD’s Action 13 on transfer pricing documentation by requiring certain reporting Forms to be filed.

The earlier Tax News Flashes referred to detail (i) the thresholds to be considered in assessing whether or not all or some of the below listed Forms should be filed, (ii) the first financial year to be considered in relation to the filing requirements, and (iii) due dates for the submission of the documentation requirements (i.e. through specific Forms).

As announced in the Law of July 1, 2016, the format of the different reporting and notification Forms would still be published through a Royal Decree. Today, the announced Forms have finally been published in the Belgian Gazette. Each Form has also been accompanied by additional commentaries, which further details how to interpret and complete these Forms.

1. Reporting Forms

Country-by-Country Reporting Form

The Country-by-Country (CbC) reporting Form is in line with the format (three tables) published on October 5, 2016 by the OECD’s Action 13 Report of the Base Erosion and Profit Shifting (BEPS) project (“Action 13 Report”).

Master File Form

The Master File Form is also composed of the content as suggested in the Action 13 Report, and should describe the following main elements: (i) Organizational structure, (ii) Description of MNE’s Business(es) (iii) MNE’s Intangibles, (iv) MNE’s intercompany financial activities and (v) MNE’s financial and tax positions.

From the commentaries to the Belgian Master File Form, it appears that for some of the above listed sections, slightly more detailed information is being requested compared to the OECD requirements (e.g. request to list paid contributions in relation to the main intangible property transactions). However, in practice, it would be generally expected that Master Files prepared in line with OECD guidance are likely to be acceptable.

Local File Form

The Local File Form can be argued to go beyond the OECD Action Point 13 requirements, and the completion thereof will be a demanding exercise for taxpayers.

The Local File Form is composed of three parts, i.e.:

A first more general, but not less important, part where one has to provide detailed information as to the management structure of the Belgian entity, its legal ownership structure, its international reporting flows, description of the main activities per business unit, list of competitors, information as to Permanent Establishments (PEs), notification of restructurings which took place during the year, etc.

A second more quantitative part, which is focusing on the cross-border intercompany transactions (or dealings for PEs) themselves, and the applied transfer pricing methods. More specifically, the second part requires, amongst others, the following information: detailed description of business unit activities, the sales/gross margins/operating margins earned per business unit over the past three years (third and related party financial information), list of cross border intercompany transactions for goods, services, financial and other transactions (including parties involved, transfer pricing policy applied and volume of transactions), information on cost contribution arrangements, list of Advanced Pricing Agreements, etc.

A third part provides the possibility to attach other documents (optional)

It should be noted that, whereas the first part (“A” labeled tables) and third part (“C” labeled table) of the Local File should be filed for accounting years starting on or after January 1, 2016 (in line with the CbC Reporting and Master File requirements), the second part (“B” labeled tables) of the Local File should only be filed as for accounting years starting on or after January 1, 2017.

2. Country-by-Country Notification Form

As foreseen in the Law of July 1, 2016, each constituent entity, part of a MNE which falls under the Country-by-Country requirements, should notify the Belgian tax authorities before the end of the Reporting Period the following:

Whether the Belgian entity is the filing entity, and if not, who will be the filing entity within the group (e.g. the Ultimate Parent Entity or a Surrogate Parent Entity); and

Where applicable, reasons why the Country-by-Country reporting filing will not be performed by the Ultimate Parent Entity or a Surrogate Parent Entity.

The CbC Notification Form submission will only have to be performed for the first time by September 30, 2017. This is an extension of the due date compared to what had initially been announced in the Law (i.e. a notification requirement by the end of the reporting period).

KPMG Comments:

The final Forms contain only minor modifications, compared to the first drafts which have been circulated informally. One of the main changes compared to the first drafts is the fact that the second part of the Local File should only be filed as from financial years starting on or after January 1, 2017 instead of January 1, 2016.

Although definitions have already been clarified compared to the first drafts, an important number of interpretation questions will arise, especially in relation to the Local File Form.

Although the second part of the Local File Form should only be filed as from accounting years starting on or after January 1, 2017, KPMG recommends performing a dry run based on the FY 2016 financial information. A consistent presentation of the financials and the applied transfer pricing methodologies as from the first reporting period will be crucial in order to avoid transfer pricing audits. Furthermore, certain parts of the Local File Form also require the provision of information for the prior two years.

The three Forms should not be completed independently from each other. It will be important to show a coherent picture throughout the three levels of reporting requirements – consistent with the expectations under the Action 13 Report.

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